SAMPLE. Pharmaceuticals

Transcription

1 Data as of Market Close: 29 December 2017 Industry Outlook Pharmaceuticals Industry Leaders & Laggards Report Comparable analysis, for companies or transactions, must be conducted against an industry background. This report provides key ratios and data for the Pharmaceuticals industry, at the global and regional level, compared to the respective sector and industry group. The report also highlights a selected number of companies that can be used as benchmarks as well as recent trends in turnover and earnings. To analyze the Pharmaceuticals group of industries we focus on consolidated accounts to retain stock market relevance. Overall the industry outlook is average, its attractiveness for value investors is low. The industry turnover reported in Table 1 decreased by 1.27% in the last quarter while its earnings increased by %. Chart 3 shows the trends in revenue and business quality. In terms of Quality StockMark (SMQ), Indonesia and Israel have the best and worse trends, respectively. It also shows stock market valuations in relation to book value and earnings mixed with median values now at 2.76 and 0.37 respectively. Table 2, in page 2, shows key financial ratios for Pharmaceuticals compared to the Healthcare sector as a whole. C3. Pharmaceuticals Trend For a disclaimer and description of rating categories see page 8. Average StockMarks Quality (SMQ) C1. Economic Sectors C2. Industry Group T1. Pharmaceuticals Country Breakdown Developed-Major Develop-Smaller Country Number of Companies Total Market Capitalization Total LQ Growth (%) Earnings Prior Quarter Earnings Last Quarter Australia 16 51, , Benelux 7 30, , Canada 41 24, , , , Germany 9 228, , , , France , , , , UK , , , Hong Kong 21 31, , Japan , , , , Sweden 15 5, Singapore 4 1, USA 105 2,416, , , , Switzerland 6 233, , , , Euromed 10 34, , Emerging Israel 2 19, , , South Korea , , Taiwan 44 8, South Africa 3 11, , Brazil 2 7, China , , , , Indonesia 8 8, India 86 97, , , Malaysia Poland Thailand 1 1, Turkey Total 752 4,331, , , , * Values are in millions USD 1

2 T2. Benchmark Ratios Pharmaceuticals Healthcare Industry Comparisons 2nd Decile Median 8th Decile 2nd Decile Median 8th Decile Growth 1.51% 4.92% 16.35% 1.06% 5.75% 25.01% Volatility Margins EBITDA Margin % 16.12% 35.40% % 10.75% 33.12% Operating Margin % 9.40% 23.10% % 3.64% 19.92% Asset Turnover Cash Conversion Operating Cycle (Days) Net Operating Cycle (Days) Average Days Receivables & Other * Leverage Breakeven Degree of Operational Leverage Degree of Financial Leverage Efficiency ROA % 3.47% 9.06% % -1.49% 7.52% ROE % 6.88% 15.82% % 1.22% 15.28% Equity Growth -4.99% 1.50% 4.73% % 0.88% 6.50% Liquidity Cash Ratio * Quick Ratio * Current Ratio * Solvency Interest Service Coverage * Capitalization Gearing * Earnings and Distributions Earnings Yield -6.76% 2.12% 5.50% % -0.35% 4.45% Dividend Payout 18.61% 35.46% 71.12% 18.76% 34.93% 68.48% Buyback Payout 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Valuation Parameters Capital structure (D/E) Beta - 3 years WACC 4.07% 5.78% 9.14% 4.60% 6.12% 12.03% StockMarks Price Attractiveness (SMP) Valuations per Share Price to book value Price to sales Enterprise value/ebitda * The definition of this ratio is different for banks and insurance companies 2

3 T3. Benchmark Ratios Developed Major Countries Developed Smaller Countries Emerging Countries Region Comparisons 2nd Decile Median 8th Decile 2nd Decile Median 8th Decile 2nd Decile Median 8th Decile Growth 0.74% 5.88% 29.11% 1.49% 3.20% 11.76% 2.29% 5.36% 10.81% Volatility Margins EBITDA Margin % 44.41% 6.08% 19.37% 35.86% 5.64% 14.61% 26.40% Operating Margin % 26.72% % 8.19% 17.66% 4.04% 12.91% 23.62% Asset Turnover Cash Conversion Operating Cycle (Days) Net Operating Cycle (Days) Average Days Receivables & Other * Leverage Breakeven Degree of Operational Leverage Degree of Financial Leverage Efficiency ROA % -3.31% 8.81% -6.28% 2.90% 7.81% 1.89% 5.82% 10.24% ROE % 1.83% 19.13% -9.16% 4.75% 10.23% 4.00% 10.16% 16.32% Equity Growth % 0.28% 6.07% -2.43% 1.56% 4.43% 0.83% 2.27% 4.18% Liquidity Cash Ratio * Quick Ratio * Current Ratio * Solvency Interest Service Coverage * Capitalization Gearing * Earnings and Distributions Earnings Yield % 0.02% 5.53% -2.30% 1.74% 6.03% 0.89% 2.71% 5.02% Dividend Payout 23.45% 36.52% 73.49% 13.08% 27.27% 67.38% 21.92% 36.72% 71.76% Buyback Payout 0.00% 0.00% 0.00% 0.00% 0.00% 0.45% 0.00% 0.00% 0.00% Valuation Parameters Capital structure (D/E) Beta - 3 years WACC 4.79% 5.96% 13.03% 3.50% 5.41% 6.67% 3.52% 5.32% 7.34% StockMarks Price Attractiveness (SMP) Valuations per Share Price to book value Price to sales Enterprise value/ebitda * The definition of this ratio is different for banks and insurance companies 3

4 Stock Prices and Industry Ratings Globally, stock prices in the Pharmaceuticals industry declined by -1.34% in the last quarter. This was worse than in the previous quarter. At the regional level the region led the process (see chart 4 on the right). In terms of valuations, the SADIF synthetic valuation multiple (SMK in chart 5), shows that the industry compares similarly with its peer industries. However, the Healthcare sector as whole is not attractive in the relation to the other economic sectors. The SADIF median ratings for the industry compared to the sector (see charts 6 and 7), show that the Pharmaceuticals industry has a better rating in terms of business quality, while in terms of safety is more safe. In terms of market sentiment, the industry fares similarly. The largest (favourable) quality differential is in the earnings quality (SMI) rating. The main contributor to the industry's safety was the market safety (SMD3) rating. While, in terms of market sentiment, it was driven by the valuation sentiment (SMW) rating. Of particular concern in the Pharmaceuticals industry is the low rating for earnings quality (SMI). While its brightest spot is in terms of the valuation sentiment (SMW) rating. C6. Global Sector Median Ratings Quality SMQ Business SMB Financials SMF Earnings SMI Safety SMD Operational SMD1 Information SMD2 Market SMD3 C4. Price Index Trend C5. Syntethic Multiple (SMK) Trend Sentiment SMC Technicals SMS Outlook SMA Valuation SMW C7. Global Industry Median Ratings Quality SMQ Business SMB Financials SMF Earnings SMI Safety SMD Operational SMD1 Information SMD2 Market SMD3 Sentiment SMC Technicals SMS Outlook SMA Valuation SMW 4

5 Traditional Industry Rankings by size The companies that make up an industry are often ranked in terms of size. Tables T4, T5 and T6 show the five largest companies in the Pharmaceuticals industry under different metrics. Table T7 contains a list of companies that we could not classify due to insufficient data. Lack of timely data can be a sign of trouble and we consider such companies higher-risk. However, from an investment point of view the big players are not necessarily the leading firms. T4. Ticker Company Name C8. Potential CAGR Total (M USD) Ind. Share (%) JNJ Johnson & Johnson 19, PFE Pfizer Inc 13, NOVN Novartis AG 12, SAN Sanofi SA 10, GSK GlaxoSmithKline PLC 10, T5. Capitalization Ticker Company Name Total (M USD) C10. Business Quality (SMQ) Ind. Share (%) JNJ Johnson & Johnson 375, NOVN Novartis AG 221, PFE Pfizer Inc 215, ABBV AbbVie Inc 154, MRK Merck & Co Inc 153, T6. Employment Ticker Company Name Total Ind. Share (%) JNJ Johnson & Johnson 126, NOVN Novartis AG 121, SAN Sanofi SA 106, BAYN Bayer AG 99, GSK GlaxoSmithKline PLC 99, The selection of leaders and laggards T7. Insufficient Data Risk We select industry leaders and laggards laggards is 53 (Eisai Co Ltd). Chart Total Mkt. Cap based on our outlook for the company as C8 shows the potential stock price Ticker Company Name (M USD) an investment asset. Our analysis uses change over the forthcoming year on the stockmarks ratings for overall the basis of each company's price 2269 Wuxi Biologics Cayman 6,503 Inc investment recommendation (SMR), target. Price targets have variable DIVISL Divi's Laboratories Ltd 4,568 business quality (SMB) and SADIF's price degrees of reliability, but our estimate target for the forthcoming year. Companies shows potential appreciations ranging GLAX GlaxoSmithKline 3,303 Pharmaceu(...) that meet (fall short of) pre-defined levels from a high of 43.32% (Pfizer Inc) MNK Mallinckrodt Plc 2,143 for such rankings are ranked by market and potential depreciations of Nanjing King-friend 1,830 capitalization and classified as leaders 62.59% (Valeant Pharmaceuticals Bioch(...) (laggards). Chart C9 shows the position of International Inc). the leaders and laggards in an SMR normal distribution. It shows that the C9. Recommendations (SMR) lowest SMR for the leaders is 51 (Amgen Inc) and the highest for laggards is 32 (Eisai Co Ltd). Likewise, the recommendations for this industry are slightly dispersed (coefficient of variation of 57.92%). Chart C10 shows their position in the distribution for quality. The lowest SMQ for the leaders is 30 (Amgen Inc) and the highest for Note: the identification of leaders and laggards for specific countries or regions is available for clients upon request. 5

6 Leaders Table T8 shows the stockmarks ratings for the leaders. Overall, in terms of quality, these companies have an average rating of 78. This is 58.14% higher than the Pharmaceuticals SMQ median of 49 and % higher than the industry s laggards average of 27. Similarly, in terms of safety the leaders average is 82, 60.1% higher than the median of the corresponding rating for the industry. Finally, the average market sentiment for the leaders is bullish, and it is 52.56% higher than the industry average. T8. Leaders - StockMarks Ratings T9. Leaders - Benchmark Ratios * The definition of this ratio is different for banks and insurance companies Quality Safety Sentiment Ticker Company Name Country SMB SMF SMI SMQ SMD1 SMD2 SMD3 SMD SMS SMA SMW SMC JNJ Johnson & Johnson USA PFE Pfizer Inc USA ABBV AbbVie Inc USA MRK Merck & Co Inc USA AMGN Amgen Inc USA Table T9 shows key financial ratios for the leaders. Comparing such values with the Pharmaceuticals median we may observe that the leaders current valuations are generally above those of the industry. Likewise, the return on equity ranges from 7.44% to 99.42%, which compares favorably with an industry median of 6.88%. JNJ PFE ABBV MRK AMGN Growth 0.57% 0.90% 3.17% 0.01% 1.32% Volatility Margins EBITDA Margin 44.88% 65.01% 50.65% 37.72% 72.99% Operating Margin 25.62% 29.44% 34.36% 3.72% 46.89% Asset Turnover Cash Conversion Operating Cycle (Days) Net Operating Cycle (Days) Average Days Receivables & Other * Leverage Breakeven Degree of Operational Leverage Degree of Financial Leverage Efficiency ROA 10.17% 5.75% 9.66% 3.10% 10.18% ROE 21.39% 16.28% 99.42% 7.44% 25.37% Equity Growth 2.86% 4.12% 11.28% -3.08% 1.60% Earnings and Distributions Earnings Yield 5.00% 5.02% 6.61% 1.75% 7.57% Dividend Payout 53.47% 99.76% 61.91% % 37.52% Buyback Payout 29.85% 51.50% 40.09% 85.39% 0.00% Valuations per Share Price to book value Price to sales Enterprise value/ebitda

7 Laggards Table T10 shows the stockmarks ratings for the laggards. Overall, in terms of quality, these companies have an average rating of 27. This is 45.82% lower than the industry's median SMQ of 49 but 65.74% lower than the industry's leaders average of 78. Similarly, in terms of safety the laggards average is 41, lower than the corresponding rating for the industry. Finally, the average market sentiment for the laggards is bearish, and it is 52.56% lower than the industry average. T10. Laggards - StockMarks Ratings T11. Laggards - Benchmark Ratios * The definition of this ratio is different for banks and insurance companies Quality Safety Sentiment Ticker Company Name Country SMB SMF SMI SMQ SMD1 SMD2 SMD3 SMD SMS SMA SMW SMC 4578 Otsuka Holdings Co Ltd Japan TEVA Teva Pharmaceutical Industries Ltd Israel Eisai Co Ltd Japan Kyowa Hakko Kirin Co Ltd Japan VRX Valeant Pharmaceuticals Intern(...) Canada Table T11 shows key financial ratios for the leaders. Comparing such values with the Pharmaceuticals median we may observe that the laggards current valuations are generally below those of the industry. Likewise, the return on equity ranges from % to 25.84%, which compares unfavorably with an industry median of 6.88% TEVA VRX Growth -1.59% 1.49% 0.84% 0.69% 1.64% Volatility Margins EBITDA Margin 28.44% 35.72% 17.06% 43.23% 93.66% Operating Margin 14.08% 7.94% 8.08% 12.18% 2.68% Asset Turnover Cash Conversion Operating Cycle (Days) Net Operating Cycle (Days) Average Days Receivables & Other * Leverage Breakeven Degree of Operational Leverage Degree of Financial Leverage Efficiency ROA 2.35% -6.63% 2.93% 3.15% 3.44% ROE 3.34% % 5.11% 3.59% 25.84% Equity Growth 1.15% 2.42% 2.84% 0.33% 35.51% Earnings and Distributions Earnings Yield 2.10% % 1.58% 2.48% 33.87% Dividend Payout 65.66% % 95.50% 62.33% - Buyback Payout 0.00% 0.81% -1.94% -0.33% 0.00% Valuations per Share Price to book value Price to sales Enterprise value/ebitda

8 The StockMarks Ratings SMR Recommendation (SMR) Safety (SMD) SMR SMQ SMD SMC SMD1 SMD2 SMD3 SMD2 SMD1 SMD3 A company's overall quality rating based on its ratings for business, financials and governance. A company's overall safety rating based on its ratings for operational, information and market risk. A company's overall sentiment rating based on investors ratings for its current valuation, estimates and technical indicators. A company's operational safety based on its ratings for revenue growth, leverage adequacy and financial strength. A company's informational safety based on its rating for earnings quality, data availability and reliability. A company's market safety based on its ratings for its continuation as a listed company, its exposure to takeover bids and its stock price volatility. SMR SMD SMQ SMC SMB SMF Quality (SMQ) Sentiment (SMC) SMG SMS SMA A SADIF recommendation based on equal weighting of company ratings for quality (SMQ), safety (SMD) and investor sentiment (SMC). Investors with different strategies (e.g. growth or safety) should reweight accordingly. SMB SMF SMG SMW SMA SMS SMW A company's business quality based on its ratings for revenue growth, cash conversion and level of leverage. A company's financial quality based on its ratings for financial strength, efficiency and performance. A company's governance quality based on its ratings for earnings quality, compensation policy and tunnelling risk. For most companies, the rating includes only the earnings quality rating (SMI). A company's valuation attractiveness based on the ratings for its current price multiples, outperformance likelihood and price attractiveness. A company's current estimates based on the ratings for its current outlook, estimates forecasts and consensus recommendations. A company's technical indicators rating based on the current values for Bollinger Bands, rates of change and relative strength indexes Marques Mendes & Associados Lda (MM&A). All Rights Reserved. This report is for information purposes only and is not a solicitation or advice to buy or sell any security. The data contained within this report is not warranted to be accurate or complete. This report is only intended as a summary of SADIF's stock ratings and not a recommendation for stock purchase or sale. Redistribution of this report without explicit permission is strictly prohibited. All logos are the copyright property of their respective companies and are used here only to aid the reader in identification of the subject of the article. The author of this article does not hold a position in any of the companies featured within this report. 8